Shares in pharmaceutical heavyweight AstraZeneca (LSE: AZN) fell by more than 4% on Thursday morning after the firm published its full-year results.
Core earnings of $4.26 per share exactly matched the latest forecasts, and the full-year dividend of $2.80 is also in line with expectations. However, although the stocks 4.5% dividend yield is attractive, AstraZenecas results didnt provide the same level of reassurance about the future as those from GlaxoSmithKline on Wednesday.
Whats the problem?
AstraZenecas sales fell by 7% to $24,708m in 2015, while the firms core (adjusted) operating profit fell by 1% to $6,902m. In todays results, the firm warned investors to expect a further low to mid-single digit percentage decline in both revenue and core earnings per share in 2016.
AstraZeneca still seems to be suffering badly from falling sales and profit margins on products thathave lost patent protection. Some of the companys biggest earners were hit hard last year. Sales of Crestor, a statin, fell by 3% to $5,107m after it lost market exclusivity in the US in May. Sales of Symbicort fell by 3% to $3,394m while revenue from Nexium fell by a whopping 26% to $2,496m.
As these three products accounted for 45% of AstraZenecas revenue in 2015, its easy to see why further declines are expected this year. Although many of the firms newer products are delivering strong sales growth, they mostly have much lower levels of sales. This means it will take some time to regain the revenue lost by older products.
Is any of this a surprise?
Its probably true to say that most of this bad news was already reflected in the price of AstraZenecas shares. Its also true that turning around a business like this will always take a number of years.
However, investors will remember that US giant Pfizer offered 55 per share for AstraZeneca two years ago. The shares would have to rise by 30% from todays share price of 42 to match that figure.
Pascal Soriot, AstraZenecas chief executive, convinced investors not to back the Pfizer deal by promising long-term sustainable growth. Back in May 2014, Mr Soriot said he was targeting annual revenues of more than $45bn by 2023, with sustained revenue growth from 2017 to 2023.
Given that last years revenues totalled just $24bn, 2016 must be the last year of declines if AstraZeneca is to hit these forecasts. I think that todays share price wobble reflects the risk involved in trusting long-term forecasts thatwere produced to defend the firm during a takeover battle.
Is the stock a contrarian buy?
Theres no doubt that AstraZeneca does have a pipeline of promising new products thatshould deliver long-term sales growth. The exact numbers may not match up with 2014s statement, but the direction of movement is likely to be upwards.
On this basis, the stock doesnt look expensive in my view, as long as youre investing on a three-to-five-year timescale. The shares trade on around 15 times forecast earnings for 2016, and the 4.5% yield provides an attractive reward for your patience.
Roland Head owns shares of GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.